Utku Tansel, head of toys and games research at Euromonitor International looks at the future for LEGO following news the firm boosted sales by 15 per cent in 2014.
As highlighted in our recent global company profile, LEGO, the world's third biggest manufacturer of traditional toys and games, continues its dynamic expansion bolstered by the success of 2014's The LEGO Movie.
The world's leading construction toys manufacturer was among the most dynamic toymakers in the world over 2009-2013, more than doubling its sales.
LEGO's global strength is founded on its dominance of the construction toys category, in which it held a 65 per cent value share in 2013.
Construction toys accounted for 94 per cent of the company's global toys and games value sales during the year, with games and puzzles responsible for most of the remainder.
However, LEGO decided to phase out its LEGO Games board game product line in 2013, judging that it did represent a sustainable fit with the company's core long-term operations.
LEGO has used its dominance of construction toys as the platform for dynamic expansion in recent years.
The company significantly increased its global construction toys value share every year throughout 2008-2013. Its strong product innovation has played an important part in driving growth, with the company launching 60 to 70 products per year, and both revitalising the core brand and expanding its consumer base through the introduction of new lines such as LEGO Friends (2012) and LEGO Chima (2013).
LEGO has also made astute use of licensing, with its relationship with brands such as Batman and Star Wars taking on an existence with a certain independence from the parent entities. This has facilitated the LEGO brand's continuing expansion beyond construction toys into video games; 2014 saw the introduction of the video game, LEGO Batman 3: Beyond Gotham, for example. Such moves have in turn had a positive impact on the company's core category sales.
2014 saw LEGO add a new dimension to its media presence with the release of The LEGO Movie. Movie releases have a marked impact on sales in toys and games across a number of categories, and the success of The LEGO Movie maintained the brand's strong momentum especially in the first half of 2014.
Moreover, it paved the way for new movies, including spin-offs, such as Ninjago and LEGO Batman movies, and a sequel to The LEGO Movie, which is scheduled for 2018.
The company's established lines such as LEGO City, LEGO Creator, LEGO Technic and LEGO Star Wars also made significant contributions to its growth over 2014. In geographic terms, LEGO has established a global reach, leading construction toys sales in every region.
Nonetheless, its operations remain biased towards the developed markets of Western Europe and North America, which jointly accounted for 68 per cent of its sales in 2013. In 2014, the toymaker underlined its commitment to expansion in China with the official ground-breaking of the company's first factory in China, located in Jiaxing, and the inauguration of a new office, one of the company's five main offices globally, in Shanghai.
What should LEGO do next?
While LEGO's concentration on a single category has been a notable strength, providing a strong focus and enabling the development of a highly recognisable, coherent brand, it makes the company sensitive to a potential wane in demand for construction toys.
The company should consider ways to diversify its offer that fit with its core brand values, particularly its emphasis on free-play, and, preferably, provide cross-over play opportunities with its core products.
Maintain movie momentum
Movie releases play an important part in boosting growth across a number of toys and games categories. LEGO should work to maintain the momentum resulting from the success of The LEGO Movie through the development of movie sequels and spin-offs, and related products in both construction toys and video games.
Develop digital gaming activity
While it has successfully extended its core brand into video games, LEGO is notably weak in digital gaming. The company needs to address this issue as digital gaming is set to be the most dynamic toys and games category over 2013-2018, and has a potentially key role to play in LEGO's expansion in Asia Pacific.
LEGO would also benefit from developing games with a greater emphasis on free-play, as embodied by its core
construction toys products.
Expand in emerging markets
LEGO is working to expand its presence in emerging markets, particularly in Asia Pacific. This needs to be a priority, especially given that the company is set to experience intensifying competition from the likes of Spin Master and, particularly, Mattel in construction toys.
While LEGO is the dominant force in the category in its core markets, it has a significantly more vulnerable position in key emerging markets such as China.